Quick Facts

Despite the regional economic and security environments, the Saudi economy has expanded at an average annual rate of about 5 percent over the past five years. Modest reforms have focused on diversifying the economy and enhancing private-sector employment growth.

Economic Freedom Snapshot

2016 Economic Freedom Score: 62.1 (no change)

Economic Freedom Status: Moderately Free

Global Ranking: 78th

Regional Ranking: 8th in the Middle East/North Africa Region

Notable Successes: Trade Freedom and Fiscal Freedom

Concerns: Property Rights, Corruption, and Regulatory Efficiency

Overall Score Change Since 2012: –0.4

Saudi Arabia lags behind other emerging economies in regulatory efficiency and market openness, and the overall entrepreneurial environment is not particularly competitive. Bureaucracy and lack of transparency continue to undermine potential gains from freer flows of trade and investment. The legal system remains susceptible to political influence. Despite strong fiscal fundamentals, the maintenance of sound public finance is under increasing strain.

Background

Saudi Arabia is an absolute monarchy ruled by King Salman bin Abdulaziz Al Saud, who became king following the death of his half-brother, King Abdullah, in January 2015. It is the world’s largest oil exporter and dominates the Organization of Petroleum Exporting Countries. Oil revenues account for about 90 percent of export earnings and about 80 percent of government revenues. Saudi Arabia joined the World Trade Organization in 2005 as part of an effort to promote foreign investment and economic diversification. Pro-reform Arab Spring demonstrations in 2011 drew few crowds outside of eastern Saudi Arabia, where the Shia minority population is concentrated. The kingdom faces a rising threat from ISIS and internal Sunni–Shia tensions.

Although the Saudi state remains notably opaque in its budgets and financial practices, the public is generally aware of the corrupt schemes through which the kingdom’s oil wealth becomes a source of private privilege for the royal family and its clients. The slow and non-transparent judiciary is not independent and must coordinate its decisions with the executive branch. Laws protecting private property are subject to Islamic practices.

Saudi nationals or citizens of the Gulf Cooperation Council and corporations pay a 2.5 percent religious tax mandated by Islamic law rather than traditional income or corporate taxes. Overall tax revenue equals less than 5 percent of GDP. Government spending amounts to nearly 38 percent of total domestic output. Budget deficits have been widening, but public debt has been kept at less than 5 percent of GDP.

Despite some improvement, Saudi Arabia still lags behind other emerging countries in easing constraints on business formation. An employment quota system enforces Saudiisation policies. There is no mandated minimum wage. Balanced budgeting of state-funded subsidies would require oil prices of $105 per barrel, and the government has sought to cover revenue shortfalls in the bond market.

Saudi Arabia’s average tariff rate is 3.6 percent. Imports of pork, used clothing, and used cars that are more than five years old are not permitted. Foreign investment in many economic sectors is either prohibited or capped. There are minimum capital requirements for foreign investors. The financial sector has undergone gradual transformation, and some restrictions on foreign investment in financial services have been eased.